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Prof. Sushil Department of Management Studies Indian Institute of Technology, Delhi INDIA Email: sushil@dms.iitd.ernet.in
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Generic Strategies
Low-cost leadership
Differentiation
Focus
Prof.Sushil\IITD\Session-VI
Competitive Advantage
Lower Cost Broad Target Competitive Score Narrow Target 3 A. Cost Focus 1. Cost Leadership Differentiation 2. Differentiation
3 B. Differentiation Focus
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Intense supervision of labour Incentives based on Products designed for ease Low-cost distribution system Differentiation Strong marketing abilities Product engineering Creative flare meeting strict quantitative targets in manufacture Strong coordination among functions in R&D, product development, and marketing
Prof.Sushil\IITD\Session-VI
Focus
Corporate reputation for quality or technological leadership Long tradition in the industry or unique combination of skills drawn from other businesses Strong cooperation from channels Combination of the above Combination of the above policies policies directed at the directed at the regular strategic particular strategic target target
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Cost of leadership is not Differentiation is not The focus strategy is sustained initiated sustained: Competitors imitate The target segment Competitors imitate: Bases for differentiation becomes structurally unattractive Technology changes becomes less imported to Structure erodes Other bases for cost buyers Demand disappears leadership erode Proximity in differentiation Cost proximity is lost Broadly targeted is lost competitors overwhelm the segment: The segments differences from other segments narrow The advantages of a broad line increase Cost focusers achieve Differentiation focusers New Focusers sub-segments even lower cost in segments achieve even greater the industry differentiation in segments
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Growth
Maturity
Decline
Leade r
Prof.Sushil\IITD\Session-VI
Product Development
Innovation Horizontal Integration Vertical Integration Concentric Diversification
Divestiture
Liquidation Bankruptcy Joint Ventures Strategic Alliances
Consortia
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Involves focusing resources on the profitable growth of a single product, in a single market, with a single dominant technology Rationale - Firm develops and exploits its expertise in a delimited competitive arena Determinants of competitive market success Ability to assess market needs Knowledge of buyer behavior Customer price sensitivity Effectiveness of promotion
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Market development Consists of marketing present products, often with only cosmetic modifications, to customers in related market areas by Adding channels of distribution or Changing content of advertising or promotion Product development Involves substantial modification of existing products or creation of new but related products Based on penetrating existing markets by Incorporating product modifications into existing items or Developing new products connected to existing products
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Concentration: Increasing use of present products in present markets 1. Increasing present customers rate of use: a. Increasing size of purchase b. Increasing rate of product obsolescence c. Advertising other uses d. Giving price incentives for increased use 2. Attracting competitors customers a. Establishing sharper brand differentiation b. Increasing promotional effort c. Initiating price cuts 3. Attracting nonusers to buy the product a. Inducing trial use through sampling, price incentives, and so on b. Pricing up or down c. Advertising new uses
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b. National expansion
c. International expansion 2. Attracting other market segments a. Developing product versions to appeal to other segments b. Entering other channels of distribution c. Advertising in other media
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1. Developing new product features a. Adapt (to other ideas, developments) b. Modify (change color, motion, sound, odor, form, shape) c. Magnify (stronger, loner, thicker, extra value) d. Minify (smaller, shorter, higher e. Substitute (other ingredients, process, power) f. Rearrange (other patterns, layout, sequence, components) g. Reverse (inside out) h. Combine (blend, alloy, assortment, ensemble; combine units, purposes, appeals, ideas) 2. Developing quality variations 3. Developing additional models and sizes (product proliferation) Prof.Sushil\IITD\Session-VI 14
Innovation Strategy
Involves creating a new product life cycle, thereby making similar existing products obsolete
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Horizontal integration
Based on growth via acquisition of one or more similar firms operating at the same stage of the productionmarketing chain Involves eliminating competitors, providing acquiring firm with access to new markets
Vertical integration
To supply acquiring firm with inputs - backward integration or Are customers for firms outputs - forward integration
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Shirt manufacturer
Shirt manufacturer
Clothing store
Clothing store
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Diversification Strategies
Concentric diversification Involves acquisition of businesses related to acquiring firm in terms of technology, markets, or products Conglomerate diversification Involves acquisition of a business because it represents a promising investment opportunity Primary motivation is profit pattern of venture Difference between the approaches Concentric diversification emphasizes commonality whereas conglomerate diversification emphasizes profits for each individual unit
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Turnaround Strategy
Involves a concerted effort over a period of time to fortify a firms distinctive competencies, returning it to profitability
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Turnaround response
Recovery phase
(operating)
Internal factors
Cost reductio n
External factors
Stability
(strategic)
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Divestiture strategy
Liquidation strategy
Involves selling parts of a firm, usually for its tangible asset value and not as a going concern
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Two approaches
Liquidation - Involves complete distribution of a firms assets to creditors, most of whom receive a small fraction of amount owed Reorganization - Involves creditors temporarily freezing their claims while a firm reorganizes and rebuilds its operations more profitably Proactive option offering maximum repayment of a firms debt in the future if a recovery strategy is successful
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Joint venture Involves establishing a third company (child), operated for the benefit of the co-owners (parents) Strategic alliance Involves creating a partnership between two or more companies that contribute skills and expertise to a cooperative project Exists for a defined period Does not involve the exchange of equity Consortia, Keiretsus, and Chaebols Defined as large interlocking relationships between businesses of an industry
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Indias largest business house More than 85 companies 39 listed 8% of Indias market capitalization 2.6 Million shareholders 2,70,000 employees Turnover Rs 343 billion (1996-1997)
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Started textile mill in 1877 Inspired steel and power industry Technical education and philanthropy Pioneered civil aviation Funded Hom Bhabhas nuclear programme Guided the Tata group for over half a century Present Chairman since 1991
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JRD Tata
Ratan Tata
Founded by Jamsetji Tata Promoted many of the present Tata companies 63% held by Tata philanthropic trusts 100% subsidiary of Tata Sons founded in 1945 Managing agency till 1970 Promoted new Tata companies in technology based businesses
Tata Industries
Power, watches, metals, chemicals, telecom, hospitality, financial services, infotech, emerging services, infrastructure, automobiles Tea and beverages, retailing
Sell
Hive off pesticides business to Ralchem Pesticides (wholly owned subsidiary of Rallis - largest integrated agrochemical company in India)
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Manages 32 tea gardens in Sri Lanka Adding tea gardens inTurkey Acquired a 9.5% stake in Asian Coffee Automobile assembly in Bangladesh Instant tea operations in the US Chain of hotels across the world Precision tooling operations in Singapore
Overseas Operations
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